It is sad and deeply disturbing to be almost always correct when making negative predictions. But so it is. A few days ago there was the news that the Finnish government fell after the Prime Minister did not get agreement in the social security issues. No reason to be sorry for it as the next election would in any case have been in five weeks, but the opinion polls show a very low support for the parties in the government. That means that the bad times in Finland are not over yet. It is not going well. Unfortunately, I doubt it will not get any better by changing the governing parties.
I was a kind of a besser-wisser twenty five years ago since I predicted this to happen. Naturally I did not predict that this particular government will fall, I predicted that Finland will end up to economic problems in twenty years. In 1994, twenty five years ago, there was the referendum in Finland of joining the EU. I voted against but the yes side won. Since that time I have expecting my predictions to come true and yes, it goes just like I said it would. Slowly, but quite at the speed I expected.
My that time opinion was based on the ancient Cold War time concept of geography: draw a circle around the center of the EU, the blue banana, and measure how far Finland is from the center – it is far, a remote area. The result of removing obstacles to free movement of goods, capital and people the result must in the long run be similar to what is seen inside any country as there are no obstacles inside a country. What do we see inside a country? Centers grow, remote areas decline. It is a slow process. I asked to wait for twenty years and see.
At that time, 1994, Finland had had for a long time a free trade agreement within EFTA and free movement of people in the Nordic countries, but capital had been released only recently and had already caused a crash in 1993. This release of capital was done in order to be able to join the EU, and the crash was largely a direct result of not devaluating, which was also done because of the planned joining to the EU. So, joining to the EU had caused serious negative consequences even before Finland had the referendum.
But most people were not worried. After 1994 Nokia did very well for over a decade and for many people it looked like geography does not matter any more. Finland will succeed in the EU, they thought. I did not think so and, indeed, it did not last. In 2009 there was the world wide recession and it stayed and stayed in Finland, not at all helped by the worsened relations between the EU and Russia. Nokia sold its mobile business in 2010 causing more problems. Last year it was announced that the recession in Finland is finally over. But – it is not over. So, I was right, only too optimistic: from 1994 to 2009 was actually only 15 years.
I guess most people do not believe this is simply geographical argument. They think that economic issues are so very complicated that extremely few people can understand the effects of globalization and people should just listen to the experts who completely understand all this as they are really bright people. Unfortunately it too often turns out that these experts predicted all wrong while the old wisdom predicts rather accurately. That’s odd. There must be a reason, so I will try to formulate my arguments against globalization in a simple and clear way. That is a way to check if I made any simple errors in my prediction.
There is a common confusion that being against globalization is the same as being against development. There are such people of course, like ultra-religious Muslims, who are against the Western style of life, follow a religious law with medieval-era punishments, and keep their women suppressed. They just would like to continue the old way of life and to do it they would like to separate from the modern world. Well, I do not think this is the way. It is mostly technical development that has changed the life. As a technical person, I naturally think that technical development is mostly a good thing and it is only positive if people from all over the world can benefit from development, which implies some kind of openness of societies. Economic isolation of a country is an act of war.
The supporters of globalization try to frame the opponents as some really xenophobic group. In 1994 in Finland before the EU vote the yes-side tried to frame the no-side as wanting the turn Finland into Albania, Albania being a closed country at that time. Naturally, there was no such intention. A better comparison had been to turn Finland to Norway or Island, which did not join the EU, but then, it was pointed out that Norway had oil and Finland could not do what Norway did, as for Island, it had fish. I do not think the yes-side argument was correct: Finland still had some export industry at that time.
Be it as it is, but globalization is not the same as development or modern lifestyle. Globalization is an idea that potentially can cause many problems.
What globalization meant in the 1994 referendum were the freedoms that are the basis of the EU: free movement of goods, capital and people, that is, the consequences of these freedoms.
By freedom of movement was not meant that people at that time did not have the right to emigrate from a country. In most Communistic countries they did not, that is evil, but in the free world, like Finland, they certainly could emigrate. But it was not so certain any country wanted to take you: countries of the free world did not automatically give a residence permission or citizenship to foreigners. And that is only natural: every country has in every war tried hard to keep other invading people away. Why should they take anyone?
Freedom of the movement of goods and services is not the question between having foreign trade and trying to be self-sufficient. Usually countries import and export many goods but normally a country can and does impose customs that regulate foreign trade. The EU freedom means that there cannot be customs between EU countries.
Freedom of capital is the most questionable of these freedoms. Usually there is needed a permission to move large sums of capital from one country to another. This permission has been traditionally required because capital movements have a major influence to economy. I do not know why this freedom is extended to countries outside Europe, but capital seems to flow as investments to the Far East. That is not the EU.
Why should there be something wrong with these freedoms? Inside most countries there are these freedoms: you can choose where to live, where to invest money and buy and sell between any places. There are large countries, such as the USA. Why should it be a mistake to introduce these rights in Europe?
I know this objection and have been thinking about it. Let us look at what I think should be the problems and if they appear in the EU.
In a traditional market model there are countries which each have their own currency and laws. Occasionally a country needs to devaluate or revaluate its currency and there is some inflation and unemployment. The state has sufficient tools to influence the economy by changing the value of the currency, the interest rate, taxes and public spending and as a result, the economy usually grows, though slowly. Movements of people are restricted. Some immigrants move in, some emigrants move out, but both are small in number and have a minor effect. Capital movements between countries are very restricted. As a result banks practically never go bankrupt or need tax payers to bail them out of debts. Almost all investments of local capital are made in the country, which means that even though there is not so much capital, the industry does invest in the home country, production stays in a competitive level and new work places are created.
The countries set customs for imports and these customs make foreign products somewhat more expensive than domestic production. Inversely, exporters will have to pay customs in the country where they sell. Customs do not much change the situation for products that cannot be produced in the home country. Such a product will have to be imported and customers pay the custom in the price. Customs also do not change the situation for a product that is clearly cheaper to produce in one country than in the others. In this case the exporter can pay the custom and the product is still competitive. The difference with having customs or not appears in products where the domestic production competes with imported goods. In such a situation having customs favors the domestic production. If all countries use customs, all get favored about as much when all fields are considered, so it is a fair system, but naturally customs reduce the total volume of foreign trade.
What happens if customs are removed?
Nothing very bad needs to happen, but it may be necessary to subsidize domestic production and export industry in some areas and the value of the currency may need to be changed sometimes. The gain of removing customs is increased trade, which increases the Gross National Product and better possibilities to keep up with technical development. As a case, before joining the EU, Finland was an associate member in EFTA. Finland subsidized agriculture, supported export industry and made several devaluations, but it worked and the economy grew. It was good to have this trade agreement.
A more relevant question is to ask what happens if it is not possible to change the value of the currency or to subsidize domestic production and export industry, as is the case in the EU. If imported goods are cheaper because there is a small difference in production costs then removing customs will make domestic production uneconomical. Domestic production of this product must stop, or costs must go down. The latter means that salaries should go down. Experiences from inside a country indicate that salaries will probably not decrease when people can freely move. What happens is that domestic production stops. The total effect is a small improvement in the total productivity of the market, but the gain is small. In the area where domestic production stops the loss is large. In remote areas typically production costs of most goods are a bit higher and much of the domestic production will disappear after some time. It causes unemployment and cuts tax income, negative side effects.
For remote areas the freedom of capital movements can be a more serious problem. Capital is needed in investments. If there are fewer investments, the number of work places decreases and the products will eventually lose their competitiveness. In a market economy the location of new investments should be done by economic considerations. These considerations show that remote areas are less profitable than central areas. Investments are done to remote areas only if there is something special in that area that cannot be moved, like minerals or forest. This rule can be verified by looking inside a country: cities grow, suburban areas decrease. The factors influencing the investment decision include the size of the market, availability of competent workers and ease of contacting customers and partners, which all favor centers. For a remote area to compete, it would have to offer advantages. If many remote areas compete by offering advantages, the gain is bargained close to zero. The result is that decreasing investments reduce the number of work places in remove areas in, as I estimated in 1994, about twenty years: a slow but sure decay.
If the country has its own currency and is able to devaluate, it can cope with this problem by making work very cheap. Then investments should start flowing in. In the EU this is not possible even if a country has a national currency because the value of the currency can change only in a small window. What remains is that wages must decrease. If movement of people were more difficult, this could happen, but because of the freedom of the movement of people, the result is that people migrate away from remote areas. They will lose population and consequently trade to these areas will decrease. First these people move to the capital area, later they will not find work there either. Well educated and intelligent people will have to leave remote areas as they will not find education or work there. Finally they will move to another country. This brain drain further weakens the remote area.
This all should be obvious. Most people do not much care for remote areas, but let us check if we see these negative effects in remote areas of the EU. The remote areas include Finland, Greece, Portugal, Southern Italy, part of Spain, and maybe Ireland. There was a bank crisis in Greece. Portugal, Southern Italy and some parts of Spain are poorer than the EU in average. Finland has had a recession and it was worsened by EU policy against Russia, which was harmful to the Finnish economy. I would say that one sees the typical center-remote area effects. Ireland is a special case as it is currently doing very well indeed, one of the richest by the GDP per capita. But it has an explanation. Since 2011 Ireland is the distribution center for the UE for international companies Google, Microsoft and Pfizer. The reasons why these companies chose Ireland may include that Ireland is not especially far from the center of the EU and that the language is English as British occupation managed to replace the original language. Earlier Ireland was poor. Ireland is not a typical remote area.
Fine, remote areas of the EU may have some problems in the future, but if so, they can get some help from the EU. They may still do worse than earlier if they used to do better than such remote areas typically do, but this problem is uninteresting for most people. The interesting question is what happens in the centers where the majority of the people are.
You may expect that if remote areas have difficulties, then the centers gain. But they also get problems: let’s see.
As remote areas lose population, the centers gain population, not much but some. That might seem as a positive effect. It might be a positive effect if the populations mix, but most probably all will not mix. It seems to be so that a typical minority has a core, which will not mix and has a higher birth rate than the original population, and a shell that does mix. Finally the shell gets mixed and there is left the core, not mixing. The result is minorities. For the original population these minorities share the area that earlier belonged to them. Some of these minorities may grow faster than the main population. Then their proportion of population grows, which decreases the proportion of the original population. Arguments that these immigrants are needed for paying the pensions of the local population are particularly absurd. The world population growth should go down or stop and if developed countries have reached this stage, it is absurd to replace these populations with other people who have not yet learned the lesson. Also, the immigrants will not pay anybody’s pension because there will be less and less work places. In a rather near future immigrants will compete over the same work places with the local people.
We have an example, the Great Britain, where the voters got tired with Polish immigrants. It may be strange, as there have always been many immigrants to the Great Britain, but so it is. Therefore the country is making a Brexit. Some other EU countries worry about immigrants from outside the EU. There was not to be any free movement of people from all over the world to the EU, but there is the common EU policy. If a country does not like the policy, it has a small conflict with the EU. Naturally, while joining a large unit, one should understand that it means accepting EU laws, policies and decisions. We can just wait until the conflicts deepen as they finally will.
But at least the centers get some talented people from remote areas of the EU and from outside. Is it really so good? It may initially seem that the brain gain from remote areas should be positive to central areas, but it is positive only in a certain sense. To the original population it is negative: the number of work places for these people is a certain fraction of the population size. The original population has competent people for this number of work places. If a large number of competent foreigners compete of these work places a smaller fraction of intelligent members of the original population will get high education and find good work.
One might argue against this conclusion and say that if the original population is enlarged by adding the populations of the remote areas, then surely the number of demanding work places is also enlarged. This is not the case. Consider a situation of ten kingdoms. They have ten kings. If they are joined, there is only one king. The same is with national sport teams. There is a paradox that small countries often can compete in sport with much larger countries, though larger countries should have much more potential. It is because the potential is not the limiting factor, it is the positions. Even a small country can find one team of good hockey players. A large country could fill many teams, but can fill only one. This mechanism does not only apply to kings and sport teams. I would estimate that any country with the size over one million and the average intelligence on the European level can find from its population enough talented people for any top task. It is because about one in six thousand is on a very high level on a chosen field (in IQ that would be 155, but it can be any talent, like a musical talent) and there are not so many positions to take them all, there is always lots of unused potential. No need to import talent. It is not at all certain, and even improbable, that the number of demanding jobs increases with the same pace with the population size.
I did not find an example for this from the EU, not yet, but the USA offers an example. They have imported intelligent minorities, today largely from Asia, earlier Jews from Russia. The result is that these minorities are overrepresented and have actually replaced natives. It is not that there were not enough talented natives, they do have them and have not used their talents. For certain reasons the minorities are overrepresented more than the talent difference would indicate. These talented minorities, being minorities, tend to support minorities against the native majority. It is a natural tendency: in average people tend to support what is good for them. If these minorities are overrepresented in top positions, they may act against the majority, which is against the principle of a democracy.
So, finally, I do not think the results are good for the center either. Remote areas will typically not gain. The USA is not any exception: I think many of these effects can be seen in the USA and if some, like declining remote areas, are not seen, it is mainly because they never reached the level from which to decline. For instance, compare Finland to Maine or Montana in population density and GDP per capita. Finland beats both of the states, so it will drop to a level in the EU that suits to a remote area state in a larger economy.
The only ones who clearly gain are international financiers, of speculation type. Old national economies were relatively stable. Banks did not go bankrupt. There were booms and recessions, but not so many bubbles. A large free market is much less stable and encourages catastrophe capitalism. Here you have the reason for my doubts of globalization.
I could stop here, but maybe I add a few words.
The international speculators are naturally the bankers and again I ended up to the Conspiracy Theories. Being recently again a frequent reader of The Unz Review, how could I avoid conspiracy theories? These international speculators are the common thread from the Masonic conspiracy through the Communistic conspiracy to the present globalization conspiracy.
It seems that conspiracy theories particularly affect rightists, especially alt-rightists. Personally I am not any rightist and used to characterize myself as a Christian, who believes in miracles (with the understanding that miracles are all man made but in those times miracles were required, and today I believe in addition miracles, that 2+2 is whatever the law says).
But why the rightists, or let us say, the alt-rightists, are so drawn to conspiracy theories? Communists, Freemasons and Jews were not as they are the bright and rational people, not the irrational fanatics, like those haters. However, Jesuits, the fourth group mentioned in these conspiracy theories, they are not bright and rational. I just mention that the group gaining on globalization is none of these, it is the international speculators. Could it be that it is caused by some childhood experiences, like an authoritarian, older father punishing them? In my case I was not any conspiracy theoretician before I looked at the video of the fall of WTC7 around 2005 or something, not a child anymore. But about childhood experiences, for sure there is something in it. I, for instance, become to believe the crazy holocaust conspiracy because of what I experienced in the primary school: that is, I learned to do addition and subtraction and just by applying those simple mathematical operations I found a fatal error in the official holocaust death toll. So, childhood experiences are certainly important. If I had not learned addition, I would have believed the official version to the end of my days. But childhood experiences are not the reason why I believe in the JFK conspiracy. That particular conspiracy theory I came to believe because of adulthood experiences, that is, learning about signals and Fourier transforms and such things so that I could check the ridiculous rebuttal paper some Warren Commission members wrote against a paper by Donald Thomas. I did not fully agree in everything with Thomas, but I certainly disagreed with the faulty mathematics in the rebuttal paper. So, it is not only childhood experiences in the primary school, it is also adulthood experiences in research work. And still about the bankers,…